FRA's important

d2rockstar

How important is it to memorize the formula to calculate FRA prices? Its killing me.

- LRM

lucasg85

I ignore the value formula and base everything on the price formula, which is easy: take the long rate divide it by the short rate, then minus one, then annualize it. Done. The value of the FRA is basically a difference between two prices, calculated as above.

scarecrow

Not sure what study program you are using, but Stalla has a nice way of breaking it down to a much easier formula to memorize.

tikfed

do not have to memorize it. just understand it.

All problems in fixed income/derivatives are just discounting and compounding.

what you need to do is idetify are :
which point of time do you have to discount to
which discount rate you should use
which value(future? present?) you should use


the rest is just multiple a (1+x)^t, or divide by it.